Strict Enforcement of Attorney Trust Account Obligations: Suspension for Misappropriation and Recordkeeping Failures

Introduction

The Appellate Division, Second Department, in Matter of Mangal (2025 NYSlipOp 02206), confronted allegations that an attorney, Yovendra Mangal, repeatedly misappropriated client funds and failed to maintain required trust‐account records. The Grievance Committee for the Ninth Judicial District filed nine charges under Rule 1.15 of the New York Rules of Professional Conduct and Judiciary Law § 90, alleging unauthorized disbursements from the attorney’s IOLA escrow account and deficient recordkeeping. A Special Referee sustained all charges, and the Committee moved to confirm the report and impose discipline. The respondent admitted the factual allegations but claimed a lack of intent. The Second Department examined the fiduciary duties of counsel, the import of accurate ledgers and reconciliations, and the appropriate sanction for serious trust‐account violations.

Summary of the Judgment

The Court granted the Grievance Committee’s motion to confirm the Special Referee’s report on all nine charges and disaffirmed the referee’s recommended sanction. Upon reviewing the totality of the evidence—including unauthorized disbursements totaling over $250,000, repeated overdrafts, and inadequate recordkeeping—the Court concluded that respondent’s conduct violated Rule 1.15(a), (b) and (d). Mitigation (pro bono service, remedial steps) was outweighed by the gravity of misusing client funds and ignoring basic trust‐account procedures. The Court ordered a two‐year suspension, effective May 16, 2025, with conditions for reinstatement under 22 NYCRR § 1240.16, and directed compliance with Judiciary Law § 90’s suspension rules.

Analysis

Precedents Cited

• Matter of Fonti, 183 AD3d 17 (2nd Dept. 2020): The Court drew on Fonti to justify a two-year suspension for misappropriation arising from negligent trust‐account management. Like Fonti, Mangal’s repeated overdrafts and failure to safeguard client funds warranted a significant suspension.
• Judiciary Law § 90: Governs the practice suspension mechanics—requiring the attorney to cease practice, return security passes, and refrain from holding out as counsel during suspension.
• 22 NYCRR Part 1200 (Rule 1.15): Lays out fiduciary duties—safeguarding client funds, avoiding commingling, maintaining accurate ledgers, bank statements, deposit slips, canceled checks, and performing regular reconciliations.

Legal Reasoning

The Court’s decision turned on three pillars of reasoning:

1. Misappropriation through Overdisbursement: Under Rule 1.15(a), any unauthorized use of entrusted funds—even if intended to benefit a client—constitutes misappropriation. Mangal repeatedly wired or paid out funds without correlating deposits, drawing on unrelated fiduciary monies. The Special Referee found these were “unexplained deviations of practice” evidencing conscious disregard for fiduciary duty.
2. Recordkeeping Violations: Rule 1.15(d) requires attorneys to keep a daily running balance, maintain ledgers with dates and transaction details, and preserve check stubs, statements, and deposit slips. Mangal’s “computer ledger” lacked dates and transactional specificity; he failed to produce bank documents for temporary checks; and he admitted relying “generally” on his bank’s online records. These lapses compounded the misappropriation charges by undermining any ability to detect or rectify overdrafts.
3. Sanction Selection: The Court balanced disciplinary precedent, the seriousness of harm to client trust, and the respondent’s mitigation. While acknowledging pro bono service and remedial efforts, the Court held that misappropriation of significant sums and persistent recordkeeping failures necessitate a suspension rather than mere censure. The two-year term aligns with precedent for comparable trust‐account misconduct.

Impact

This decision reinforces that attorneys must:

• Maintain strict controls over client funds—any overdraft or misuse, intentional or not, is treated as misappropriation.
• Keep contemporaneous, detailed trust‐account records—ledgers, bank statements, deposit slips, canceled checks—sufficient to allow prompt reconciliation.
• Perform monthly (or more frequent) reconciliations with a running daily balance; reliance on informal recollection or third-party assurances is insufficient.

Future disciplinary matters will cite Matter of Mangal for the proposition that negligence or recklessness in trust‐account management can trigger suspension, not just intentional conversion. Law firms and solo practitioners are on notice to invest in proper bookkeeping systems and oversight.

Complex Concepts Simplified

• Fiduciary Funds: Money held in trust for a client, which must never be used for other clients or the attorney’s own purposes.
• Misappropriation: Any unauthorized use of client funds—“borrowing” or overdrawing—even if to accomplish a transaction for that or another client.
• Escrow/IOLA Account: A separate bank account where attorneys deposit and hold client monies until those funds are earned or disbursed.
• Rule 1.15 Reconciliation: The requirement to compare the ledger’s daily balance with the bank statement balance and investigate any discrepancy promptly.
• Special Referee: A court‐appointed hearing officer who receives evidence and makes findings in disciplinary matters, subject to confirmation by the Appellate Division.

Conclusion

Matter of Mangal establishes a clear, stringent standard: attorneys may not rely on informal processes or client assurances to manage trust accounts. Any disbursement without a matching deposit breaches Rule 1.15(a) and constitutes misappropriation, regardless of intent. Moreover, poor recordkeeping under Rule 1.15(d) exacerbates misconduct, undermining the attorney’s ability to detect errors. A two-year suspension underscores the profession’s zero‐tolerance approach to trust‐account violations. Counsel must adopt robust accounting controls, timely reconciliations, and accurate documentation to preserve client confidence and avoid severe disciplinary sanctions.